Will Energy Stocks Rise From the Ashes?
Investors' current concerns are justified, but vast long-term opportunities remain in this significantly undervalued sector.
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Preston Caldwell: Energy stocks have been decimated in the first quarter. The Morningstar US Energy Index fell 49%, exceeding the 19% decline in the overall market. Energy stocks have fallen in tandem with oil prices, which have fallen 60% since the beginning of this year. The primary driver of this oil price crash has been reduced demand related to the COVID-19 outbreak. Also, there's the prospect of increased supply due to the failure of OPEC Plus to reach a new production cut agreement. In the near term, investors have every reason to be worried. We project 2020 oil demand will fall 2.8 million barrels per day, the largest single-year drop in nearly 40 years. Because oil producers cannot adjust overnight, global oil markets are likely to be oversupplied on the order of 3.3 million barrels per day in 2020, which dwarfs the excess seen in prior 2014 to 2016 downturn.